Heads Roll at Marconi

The CEO and chairman of Marconi PLC have paid the price for springing a nasty surprise on shareholders in early July (see Marconi Stock Tanks). Lord Simpson, who masterminded Marconi’s strategy of focusing on telecom, has been replaced as CEO by one of his lieutenants, Mike Parton. Sir Roger Hurn, Marconi’s chairman, has gone, and Derek Bonham, a senior non-executive director of Marconi, has take over as interim chairman. Both Simpson and Hurn today resigned from Marconi’s board (see Marconi Gets New CEO, Chairman).

On the London Stock Exchange this morning, Marconi’s shareprice rose from 50 pence (US$0.73) to 58 pence ($0.84) and then sank back a little to 56 pence ($0.81) after the news was announced.

The management changes at Marconi were contained in a “trading statement” issued this morning. In it, Marconi says sales have picked up in the second quarter of this year -- up, that is, from the disastrous first quarter that caught the company, and then its shareholders, by surprise. Marconi now expects to make an operating loss of £227 million ($328 million) in the first half of 2001, rather than breakeven, its previous guidance.

Marconi says that the primary goal of its current strategy is to bring down its net debt, which peaked at £4.4 billion ($6.42 billion) in the last quarter. The company expects to reduce this to £2.7-3.2 billion ($3.94-4.67 billion) by the end of March next year (the end of its financial year).

The company says it’s “not in a position to give further sales and operating profit guidance for the full financial year." However, it notes that its annual operating costs will be reduced by 27 percent, to £1 billion ($1.4 billion), by next March. This means Marconi will need sales of £800 million ($1.16 billion) a quarter to break even, the company says.

The cost reductions will come partly from a further round of 2,000 layoffs, in addition to the 8,000 Marconi has already announced.

Other cost reductions are expected from Marconi’s decision to focus on what it now describes as its “core business.” This encompases three equipment categories:

Optical networks. This includes Marconi's SDH and DWDM gear. It also includes ultra-long-haul transmission equipment being developed by its Solstis venture (see Marconi Touts Long-Haul Box) and a planned optical switch.

High capacity packet switches. This is the range of switches that it inherited from Fore Systems, together with recent additions (see Marconi Unveils Big Switch/Router).

Broadband access platforms. Marconi already has a sizeable share of the fiber-to-the-home market, which could turn into a big money spinner.

The company says its core business had sales of £4,665 million ($6.75 billion) and an operating profit of £592 million ($857 million) in the year ended March 31, 2001.

Marconi's determination to stick to its core business raises a big question mark over Marconi’s optical components division, which was only formed last December (see Marconi Joins Optical Components Field). It's said to be an Aladdin's Cave of optical technologies invented by boffins at Marconi's Caswell labs. Commercializing these developments, however, seems to have been beyond Marconi. "It's like walking through treacle," one staff member recently told a Light Reading source.

In a conference call with analysts today, CEO Parton said that Marconi had sunk a lot of cash into its optical components division and into another "non-core" venture, a service provider called Ipsaris. The "non-core" reference indicates that Marconi has turned off the funding tap on both outfits.

Marconi has already struck a deal under which Ipsaris is being "merged" (acquired) by another telecom operator, Easynet Group PLC. Marconi is "looking at various ways" of developing its optical component business, Parton said on the conference call. This includes partnering with other companies or selling it off.

Marconi is hoping to raise £500 million ($721 million) from the disposal of non-core assets by the end of its financial year next March.

— Peter Heywood, Founding Editor, Light Reading
http://www.lightreading.com